Supply and demand curves are shifting in a disinflationary pattern, says Rosenberg Research founder

Bring in Rosenberg Research founder and president David Rosenberg. It’s good to have you back on David. You know the bond trade that that has not worked in your favor. It’s been selling bonds with higher yields, persistently higher on these upside inflation surprises and pushing out Fed cuts. Well, it hasn’t worked for the past few months. And I wouldn’t say it’s so much because of the CPI data as much as the pivot from the Fed. The most important determinant of yields of the Treasury curve is expectations of Fed policy. So, you know, when we went from 5% at the peak last summer down to 3.6, you know, we’ve gone from a period where people thought there’s going to be endless Fed tightening to the Fed cutting rates four times this year. And then we backed up, you know, from 360 to say, you know, 460. And that’s because we’ve gone from pricing in four way cuts to practically nothing. So the bond market is just following this ongoing, you know, shift in in the Fed’s ongoing pivoting. So that’s really what the story has been. But isn’t the Fed pivoting because the inflation numbers have come in a little hotter? Well, you know, that’s what they say. You know, the, the CPI number is not what they forecast. It is a completely flawed statistic. And for all the talk about there being broad based inflation, it’s really down to three things, auto insurance, health premiums and the way the BLS treats rents. The PC deflator has been much more tame. And the point I’m making is that when you read the Feds Beige Book, which has been around for 53 years, and Sarah, if you’re, if you read the entire Beige Book, you’re, you’re scratching your head. Where, where is the inflation? The inflation is in the way the BLS constructs the consumer price index. But all you read about in the Beige Book and it’s the Fed’s own survey, these are the Fed’s own business contacts. And they were saying it was just replete with evidence that the corporate sector is losing pricing power. So whatever inflation you’re talking about is showing up in margins, it’s really not showing up in final inflation. It’s showing up in services inflation too though, David. And we see that in the numbers and and the story I guess that they’re worried about there is just that the economy it’s still very strong. We’re expecting this first quarter GDP number on Thursday, it’s set to be above 2% driven by consumption. And as long as that’s going strong, unemployment rate is still below 4% and inflation is running a little hotter than there’s no rush to cut rates. Sara, I totally and respectfully disagree with you, OK. The services that you’re referring to our rents and being influenced by the distributive lags that are keeping the disinflation process and rents painfully slow insurance premiums. What does that have to do with the economy? What does that have to, I mean health insurance premiums, What does that have to do with the economy? If you’re taking a look, for example, at at airfares, they’re deflating accommodation rates, they’re deflating inflation and restaurants have slowed down dramatically. So I would I would take issue that the service sector inflation is something that the Fed can really even combat. But the cyclical part of services even is either slowing down or or actually deflating, you know. As As for the economy, yes, GDP is about aggregate demand. You can’t forecast inflation with one curve. You need demand, you need supply. So you said before, yes, real GDP, 2 percent, 2% plus. What is the aggregate supply curve doing? Productivity and labor force growth collectively are running 3 1/2 percent. You can’t forecast inflation with one curve. If you’re taking a look at how the supply curve is moving in relation to demand, the pressures on inflation with all due difference to the BLS measurement of the CPI. When you’re taking a look at how the supply and demand curves in the US economy are shifting over time, it is in a disinflationary pattern.